When we were in college mostly valuation of a company meant calculating the surplus over and above the ‘normal’ return on assets. Of course, I am simplifying a lot, but we could NEVER, ever assume that interest costs would be zero. Never, repeat.

So when interest rates are high companies with a lot of assets are valued higher. It meant that it was far more difficult to replace assets if interest rates were higher at say 12% rather than at say 6% p.a. Simple to understand? Yes we found it simple too.

Then came a situation where the USA kept interest rates at zero or near zero levels for 2 decades and counting. This was difficult for most of us to believe. Just like how the USA could not believe that REAL WAGE in China and India could be US $ 1 per day for a very big part of the population…and has gone up over the past 20 years. This was nowhere near the American minimum wage – it was perhaps 1/20th their Min wage!

Suddenly America had to accept that an Air BnB could be valued at a rate higher than all the hotel shares and rental apartment stocks put together. Goldman Sachs is not valued much higher than many dot coms. Cash flow did not have much respect (remember money cost is zero or negative). So Uber has more value than auto companies (brands are worth more than assets), cash burn has more respect than cash flow. Softbank can keep buying assets at ‘inflated’ values, merge, de-merge, do internal transactions, and turn all valuation principles on its head. I did the brand valuation for Parle when they had to sell Thums Up, Limca, Gold Spot….to Coke. Today I would not know how to do the valuation! Our principles assumed ‘interest’ cost. Now it is NIL, if not negative.

Of course we all realize that everything that counts (brand value, relationships, HR, client roster, permissions, visas, systems….) cannot be counted, but these are new games. I seriously do not know how to play it. I am not the only person lamenting about this – actually I am indifferent. When you see that Goldman Sachs is slipping in market cap and Pay pal is increasing, you realize that the Chairman of GS is also wondering what hit him.

Is it just plain karma or is there a new ‘normal’ being written? or is it a combination of both?